So called “Hard Money Lenders” are what are also referred to as predatory lenders. This implies they make loans based on the premise that the terms to the borrower have to be such that they will gladly foreclose if required. Conventional lenders (banks) try everything they can do to avoid taking back a house in foreclosure so they are the true opposite of Moneylender News Singapore.
Within the classic days prior to 2000, hard money lenders pretty much loaned on the After Repaired Value (ARV) of the property and also the percentage they loaned was 60% to 65%. Sometimes this percentage was as much as 75% in active (hot) markets. There wasn’t a lot of risk as the real estate market was booming and funds was easy to borrow from banks to finance end-buyers.
When the easy times slowed then stopped, the difficult money lenders got caught in a vice of rapidly declining home values and investors who borrowed the cash but had no equity (money) of their very own within the deal.
These rehabbing investors simply walked away and left the hard money lenders holding the properties that have been upside-down in value and declining every single day. Many hard money lenders lost everything that they had along with their clients who loaned them the amount of money they re-loaned.
Since then lenders have drastically changed their lending standards. They no more look at ARV but loan on the purchase value of the home which they must approve. The investor-borrower should have a satisfactory credit standing and set some money inside the deal – usually 5% to 20% depending on the property’s purchase price as well as the lender’s feeling on that day.
However, when all is said and done, Moneylender Act still make their profits on these loans through the same areas:
The interest charged on these loans which can be between 12% to 20% based on competitive market conditions between local hard money lenders and what state regulations will permit.
Closing points are definitely the main revenue stream on short-term loans and range between 2 to 10 points. A “point” is equivalent to one percent from the amount borrowed; i.e. if $100,000 is borrowed with two points, the charge for the points will be $2,000. Again, the quantity of points charged depends on the amount of cash borrowed, the time it will probably be loaned out as well as the risk to the lender (investor’s experience).
Hard money lenders also charge various fees for nearly anything including property inspection, document preparation, legal review, and other items. These fees are pure profit and really should be counted as points but are not because the mixture of the points and interest charged the investor can exceed state usury laws.
These lenders still look at every deal as if they will have to foreclose the loan out and take the property back – they may be and also is going to be predatory lenders. I might guess that 5% to 10% of hard money loans are foreclosed out or taken back with a deed rather than foreclosure.
So except for the stricter requirements of Moneylenders Act, there were no fundamental changes regarding how hard money lenders make their profits – points, interest, fees and taking properties back and reselling them.
These lenders also glance at the investor’s capability to repay the borrowed funds each month or make the required interest only payments. If you visit borrow hard money, be prepared to might need some of your money and have lmupww in reserve so you can carry the borrowed funds until the property is sold.